Can Google Replace Your Wallet?

The search giant says yes. Analysts and consumers aren't so sure.

By

KelliB. Grant

As anticipated, the "Google Wallet" is on its way: By fall at the latest, shoppers will be able to replace cash, credit cards and even a driver's license with a wave of their phones. But for many consumers, today's announcement failed to answer a longstanding question: So what?

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For financial companies, technology firms, and cell phone companies,
GOOG, -0.73%
announcement is a big one. The search giant has developed software for its Nexus S smartphone that will allow some customers to link their credit or debit card information to a chip in the phone, then use the handset to pay at participating retailers. It's the first coordinated effort by major companies into what the industry calls "contactless mobile payments," which experts say could be nearly as lucrative as credit cards are today. "Banks can't afford not to have that kind of technology in place," says Dennis Moroney, a research director for consulting firm Tower Group.

But today's announcement also showed how far we are from being able to replace an overstuffed wallet with a sleek smart phone. In order to take advantage of Google's new technology, customers must: own an Android phone equipped with an NFC chip, currently limited to Google's own Nexus S, widely considered one of the least-popular smartphones on the market; have a Citibank MasterCard-branded debit or credit card or be willing to use a Google-branded prepaid card; and shop at a retailer that has the technology to accept MasterCard's contactless payments, which so far, only about 300,000 do. "There's no scale there," says Mark Beccue, an analyst with ABI Research.

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To be sure, as other companies hustle into the market, there will be more options for customers and more incentives for retailers.
RIMM
Samsung and
NOK, -1.94%
have said they plan to incorporate technology that will turn their phones into payment systems; there are also rumors that the iPhone 5 (due out later this year) will have similar features. (
AAPL, -1.54%
didn't respond to requests for comment.) On the software side,
MA, -1.46%
and
V, -0.38%
say they will be able to enable banks to support such transactions this year.

Most U.S. consumers are still at least three years away from actually using their phones to pay for groceries or a dental checkup, says Bob Eagan, an independent technology analyst. Even then, beyond the novelty, experts say it will be tough to convince consumers to pay by phone. Where a credit card enables short-term borrowing and a debit card eliminated the inconvenience and security risk inherent in check-writing, using a phone to supplant either doesn't offer obvious benefits, says Beccue. Google's program limits purchases to $100 or less, unless the phone's owner takes extra steps to confirm them. The wallet does transmit loyalty program, payment and coupon information in one tap, but you'll likely still need to enter a code or sign for the purchase, and with multiple cards, select in which one you'd like to use, he says: "Is that much easier than pulling out a credit card?"

Even those who want to pack light are out of luck. Although Google said its digital wallet will eventually be able to carry everything you'd have in your wallet, in the short-term users will still have to carry ID, plus possibly employee ID, health insurance cards, bus passes, and other wallet-fattening pieces of plastic. As for that sentimental mash note from your spouse, you'll just have to scan it in.

There are also security concerns. Credit card information embedded on a phone could become a target for thieves, Eagan says. Google says the chip containing financial data is only "on" when you access the Wallet app,a nd all information is encoded. But breaches have happened before: earlier this spring, Google pulled dozens of apps from the Android Marketplace that the company said contained harmful software capable of pulling data from other areas of the phone.

Banks say they've also pressed phone companies and manufacturers for tighter security measures. MasterCard, for example, will offer additional safeguards such as entering a code to approve purchases and the ability to erase your phone's data remotely if it gets stolen, says James Anderson, the company's vice president of mobile.

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